Ryanair takes a “cautious” outlook for the rest of the year

By November 4, 2019 January 16th, 2020 General News

Ryanair has reported flat profit for the first-half of the year of €1.15bn and takes a “cautious” outlook for the remainder of the year.

The airline group reported higher fuel and staffing costs, as well as impacts from the continuing 737 MAX delays, but also positive growth in network and bases opened.

The airline reported that for H1 traffic grew 11% to 86m guests and revenue per guest rose 1%. Ancillary revenues jumped 28% to €1.65bn as more guests opted for Priority Boarding and Preferred Seat services, however, the airline also recorded 5% lower air fares, citing a “weak consumer demand in the UK and overcapacity in Germany and Austria.”

Ryanair saw its fuel bill rise 22% (+€289m) to €1.59bn due to higher prices and its traffic growth. The airline said its fuel is 90% hedged for FY20 at a rate of $71bbl, and currently 63% of FY21 fuel is hedged at $61bbl.

Ex-fuel unit costs rose 2% the airline reported, primarily due to higher staff costs, increased pilot pay and higher than expected crew ratios, consolidation of Lauda costs and higher maintenance due to older aircraft remaining in the fleet due to the Boeing MAX delivery delays.

The impact of MAX delays

“We continue to negotiate attractive growth deals as airports compete to win Ryanair’s traffic growth,” the airline reported, adding however, “Sadly, due to the MAX delivery delays, we will be forced to cut or close a number of loss making bases this winter leading to pilot and cabin crew job losses. We continue to work with our people and their unions to finalise this process.”

Delivery of the group’s first B737 MAX-200 has been delayed several times from Q2 2019 and is now expected to deliver in March/April 2020, at the earliest and subject to EASA approval, though the airline added, “the risk of further delay is rising.”

The group expect to receive only 20 of the aircraft (previously 58) in time for S.20, which the airline said has cut its S.20 growth rate from 7% to 3% (162m to 157m guests in FY21).

“We remain confident that these “gamechanger” aircraft (which have 4% more seats, but burn 16% less fuel) when delivered will transform our cost base and our business for the next decade,” Ryanair said in its report, adding: “Due to these delivery delays, we will not see any of these expected cost savings delivered until FY21.”

The group performance

Remarking on the performance of the Group airlines, the company reported Buzz flew 24 B737s (seven for charter operations, the remainder for scheduled services for Ryanair) in S.19 from its six Polish bases and is developing growth opportunities in other Central EU countries.

Over summer Lauda operated 80 routes across its four bases, and with A320 aircraft and more pilots released following the collapse of Thomas Cook and Adria Airways, the airline plans to grow from 23 A320s in S.19 to 38 for S.20.

“Lauda’s pricing environment remains difficult in its key Austrian and German markets and Lauda’s revenue per guest remains behind target. They are working hard to grow ancillary services, lower costs and increase efficiencies,” the report stated, “While still loss making in FY20, we expect this very strong traffic growth, cost reduction and improved ancillary spend will push it towards breakeven in FY21.”

Malta Air entered the Ryanair family in June, and over the next three years is expected to grow the Maltese base from six to 10 based aircraft and will also operate most of the group’s French, German and Italian bases.

During H1 Ryanair DAC opened five new bases (Bordeaux, Marseille, Toulouse, Southend and Berlin) and launched 241 new routes, including new country markets in Ukraine, Turkey and Lebanon. In S.20 the airline will operate to Georgia and Armenia.

 

Future forecasts

“Our outlook for the remainder of the year remains cautious,” the airline concluded. Ryanair expects full year traffic to grow 8% to 153m, and anticipates a “slightly better fare environment” than the previous winter, but adding that this remains sensitive to market uncertainty such as a ‘no deal’ Brexit.

The group also expect ancillary revenues to grow ahead of traffic growth, supporting full-year revenue per guest growth of 2% to 3%, and also expects the full year fuel bill to rise by €450m and ex-fuel costs to increase by 2%.

Meanwhile, Ryanair said though overcapacity in Austria and Germany is expected to mean Lauda’s losses will be higher than originally anticipated, traffic will be higher as the airline aims to take advantage of the availability of low cost A320 leases.

As a result, the group is narrowing the full-year guidance to a range of €800m to €900m PAT, though the guidance is “heavily dependent” on close in H2 fares, Brexit and the absence of security events.